Question 1

What is owner financing?

Accepted Answer

In a bank-financed sale, the buyer borrows from a bank and the bank earns the interest. In an owner-financed sale, you become the lender: the buyer brings a substantial down payment to closing, you deed them the home exactly like any sale, and they make monthly principal-and-interest payments to you — secured by a lien on the home, just as a bank's loan would be.

Question 2

Do I need a license to finance my own home sale?

Accepted Answer

No. Federal rules specifically allow a homeowner (a person, trust, or estate — not an LLC) to finance the sale of one property they own in any 12-month period without being a licensed loan originator, and Texas allows up to five in 12 months before its own licensing kicks in. The note still has to follow the rules — a fixed rate (or adjustable only after five years) and no negative amortization — which is exactly what the attorney papers. Selling more than one a year, or want belt-and-suspenders? A licensed originator (RMLO) joins the team.

Question 3

What if the buyer stops paying?

Accepted Answer

Because the deal is papered with a promissory note and a deed of trust, you hold the same remedy a bank holds: Texas non-judicial foreclosure — no lawsuit needed. The buyer gets a notice of default with a 20-day window to catch up; if they don't, a notice of sale posts at least 21 days ahead and the sale happens on the first Tuesday of the month. It's among the fastest processes in the country, you keep the down payment and every payment already made, and the home comes back to you. I work with Texas real-estate attorneys who handle this — you'd never navigate it alone.

Question 4

Who collects the payments and handles taxes and insurance?

Accepted Answer

A professional note-servicing company — you never play bill collector. It collects the monthly payment by ACH, tracks it against the amortization schedule, escrows a twelfth of the property taxes and insurance with each payment and pays those bills annually, keeps the official payment history, and sends both sides' year-end tax forms (including the buyer's Form 1098). The cost is a modest monthly fee — small next to the interest you're earning.

Question 5

What are the tax implications?

Accepted Answer

This is one of owner financing's quietest advantages. Sell the usual way and your entire capital gain lands in the single year you close — one big number, taxed all at once, sometimes pushing you into a higher capital-gains bracket for that year. Seller-finance the same home and the tax code treats it as an installment sale by default: you recognize gain only on the principal you actually receive each year, spread across the life of the note — which can keep you in lower brackets year after year. And while the gain is staggered, the whole unpaid balance is earning you interest the entire time; that interest is ordinary income each year, on top. The primary-residence exclusion ($250K single / $500K married) still applies first. One honest exception: if the home was a rental, the depreciation you claimed is recaptured and taxed in the year of sale even on an installment plan — plan for that. Confirm all of it with your CPA — I'm your REALTOR®, not your tax advisor.

Question 6

Can I do this if I still have a mortgage?

Accepted Answer

Usually no — and I'll tell you straight. Nearly every mortgage contains a due-on-sale clause: transfer the home without the lender's consent and it can call the entire balance due. Owner financing works cleanly when you own free and clear or can pay the loan off at closing. Workarounds (wraparound structures) exist, but they carry that call-the-loan risk and are strictly attorney territory — if you owe a meaningful balance, another selling option probably fits you better.

Question 7

Can I get my money out early?

Accepted Answer

Two ways. The note can be structured with a balloon — for example, payments amortized over 30 years with the balance due in year seven — which the rules allow when you're financing one sale in 12 months. Or, down the road, a performing note with a documented payment history can be sold to a note investor, typically at a discount, if your circumstances change.

Sell Your Home and Become the Lender

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